Macroeconomics: The Day Ahead for 26 October

While the many overarching themes such as the Israel Hamas conflict, central banks ‘high for longer’ rates narrative, geopolitical tension will continue to cast a long shadow, today’s barrage of US economic data and another deluge of corporate earnings worldwide should be the main focal points, the latter headlined by Amazon. There are South Korea’s slightly better-than-expected Q3 GDP and Singapore Industrial Production to digest, while ahead lie the UK CBI Retailing survey, US advance Q3 GDP, weekly jobless claims, Durable Goods Orders, Retail & Wholesale Inventories, Pending Home Sales and Goods Trade Balance. EM rate decisions are due in Turkey, Ukraine and Chile, with Turkey’s expected to opt for another aggressive rate hike of 500 bps to 35.0%, particularly given the upturn in both headline and core CPI, and still plenty of pipeline pressure from the slide in the TRY, and indeed the rise in oil prices. Elsewhere Ukraine’s NBU is expected to cut rates a further 200 Bps to 18.0%, while Chile’s BCC is seen cutting 75 bps to 8.75%. The US rounds off this week’s coupon refunding with $38 Bln of 7-yr, though the whopping $180 Bln 4 & 8 week-T-bill sale is the more tangible reminder about why there are so many market concerns about the scale of US govt debt. The first still to be union approved deal with Ford in the US UAW strike should set the template for an agreement with the other two major automakers, and removes a threat to the economic outlook, but on the other hand at 11% for this year it will add upward pressure to wage growth, and per se is likely to attenuate the higher for longer rates narrative.

** Eurozone – ECB council meeting **

ECB messaging has made it very clear that it will leave rates unchanged for the first time since June 2020, and it will likely signal that with financing conditions clearly tightening, and the economy slowing, rates are now on hold for a protracted period (at a minimum until the end of H1 2024), while still leaving another rate hike on the table, if the inflation picture unexpectedly deteriorates. The statement will probably note risks to inflation on the upside and downside, justifying the high for longer message. There will be a debate on whether to stop PEPP reinvestment, but with so much uncertainty about the global economic outlook, a decision on that is likely to be kicked into 3 Q1 2024. But it will be conscious that its window of opportunity to end PEPP reinvestment may prove to be limited, given that it would not to find itself in the paradoxical position where it wants/needs to cut rates, while still reducing the size of its balance sheet.

** U.S.A. – Q3 GDP **

Q3 advance GDP is expected to rise 4.5% SAAR, paced by a 4.0% rise in Personal Consumption (above all Services), a swing to small positive contributions from Net Exports (mostly due to a drop in Imports) and indeed Housing Investment, as well as Retail Inventories. In terms of risks, it’s a case of which of the Fed GDP now estimates one wants to go with the Atlanta Fed measure at 5.4%, and NY Fed at 2.5%! For many, this Q3 GDP strength is expected to be a one-off, though the question of how much the economy will slow in Q4 still very much open, and of course bearing in mind that markets have been talking about US recession risks for more than a year, and have been constantly wrong-footed, particularly with respect to consumer spending. Durable Goods Orders are forecast to post a headline rise of 1.5% m/n on strong Boeing Orders, but core measures are seen at tepid levels: ex-Transport 0.3% m/m, and Non-defence Capital Goods ex-Aircraft flat m/m. Pending Home Sales are expected to post another 1.7% m/m fall.